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An Oracle White Paper May 2009

Building the Business Case for AIA

Oracle White Paper—Building the business case for AIA

Executive Overview ............................................................................. 3

Why AIA? ............................................................................................ 4

Today’s Business Challenges ......................................................... 4

How Can AIA Help? ........................................................................ 5

How Can AIA Help In My Industry? ................................................. 7

Why build a business case for AIA? .................................................... 9

The need to deliver more business value from IT ........................... 9

More value without a corresponding increase in cost ..................... 9

Quantifying the business value ....................................................... 9

How to build your business case for AIA ........................................... 10

Step 1: Assess Process Performance & AIA Maturity ................... 11

Step 2: Develop Solution Footprint & Implementation Plan .......... 13

Step 3: Identify Benefit Drivers & Calculate ROI ........................... 15

What benefits have others achieved? ............................................... 19

KPN ............................................................................................... 19

How can Oracle help? ....................................................................... 23

Oracle Insight Program ................................................................. 23

Conclusion ........................................................................................ 24


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Executive Overview Today’s reality is that most organizations are saddled with a very heterogeneous systems environment. The reasons are many - silo-ed IT decision-making, mergers and acquisitions, and evolving business strategies to name a few. These environments have created high levels of complexity in executing business processes, which, in turn, create higher operating costs. Disparate systems also hinder adaptability and responsiveness, which limit growth and innovation.

Traditional integration technologies that interconnect disparate systems are cumbersome and costly to maintain. Today, however, Oracle has taken ownership of the integration challenges and has created prebuilt, standards-based integrations that drastically reduce the total cost of ownership. Application Integration Architecture (AIA) provides pre-built integration that reduces IT costs and increases the performance of end-to-end business processes.

Approximately 70% of the IT budget is spent on maintaining the current environment with only 30% being dedicated to providing new capabilities to the business3. AIA can help reduce current maintenance costs while providing a platform that brings new capabilities to the organization.

This paper describes why AIA is important to organizations with heterogeneous IT environments. It identifies various industry-specific and cross-industry processes that can be positively affected by AIA. The paper goes further to help identify the benefit drivers from AIA, determine the costs and calculate the Return on investment (ROI) from AIA projects. We introduce frameworks, tools and templates to help the reader create their own business case for AIA.

Oracle can also help customers through its Insight Program, a program designed to help customers align their current business challenges to technology solutions and understand how technology drives business impact.


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Why AIA?

Today’s Business Challenges

Over the past few decades, globalization has become more pervasive. The recent financial crisis has shown just how interconnected the world economy is. Today’s organization has to be able to compete with both small and large players around the globe as the barriers to entry in many markets continue to fall. The ability to compete successfully requires success on many fronts:

Operational efficiency

Customer intimacy

Product and service innovation

In order to fight these battles successfully, today’s organizations must be as efficient as possible. Processes should be constantly evaluated and improved as part of the daily operations of the business. At all times, the various levels of management and operations need to have visibility into the organization and its operations. This visibility will help better understand areas of improvement as well as better understand the customer’s current and future needs. Finally, in order to respond to the dynamic environment that we find ourselves in today, it is important to have agility so that we can dynamically respond to changes in the market or proactively out execute the competitors.

However, as organizations strive to innovate more efficiently, control costs, and improve customer service, they face a broad range of challenges. Increasingly, companies find themselves still relying on manual, incomplete, duplicate or outdated processes. Businesses often do not support process automation that is designed to free up workers to focus on more strategic initiatives across the value chain. Organizations tend to have a collection of silo-ed processes and

1 Managing IT in a downturn, Beyond cost cutting, McKinsey, September 2008

…IT investments deliver more value to a company’s top and bottom lines – by creating new efficiencies and increasing

revenues – than any savings gained from traditional IT cost cutting…1

McKinsey, September 2008


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applications that are specific to the requirements of individual business units, but not for the organization as a whole.

How Can AIA Help?

Ultimately, integration is the reason most companies do not have agile processes.

Disparate Application Systems

Lack of Process Alignment

Growth and Innovation Lag

Cumbersome Mix of Technologies

Reduced Responsiveness & Adaptability

Integration Challenges Business Impact

SPEEDQUALITYCOST

Complexity and Higher Operational Costs

Organizations may have best-in-class applications, but frequently these applications and processes are optimized to support only one part of the value chain. This approach results in a disconnected enterprise, where information is fragmented, processes are inefficient and systems are not designed to change with the business. Needless to say, this impacts a company’s ability to innovate or support global growth initiatives when everyone is operating in their own vacuum.

Oracle is helping customers make the right technology investments today to help improve and standardize processes.

Integration Solution

Traditional Approach Oracle’s Approach


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Oracle is bringing transformation to the way companies integrate their applications today by focusing on all aspects of business process execution, which enables organizations to make the most of current IT investments. Business process management is not just about data transactions. It is a top-down design approach starting with a concrete understanding of the people, roles and procedures that need to be supported by IT. Once this view is understood, then it is about being able to map those users to a process and the corresponding underlying technology needed to support the business process.

This new approach is radically different from the traditional approach, wherein the data integrations across disparate systems are point-to-point, rigid, and costly to maintain. The new Oracle approach is not only cost-effective and allows for flexibility, but it also makes it easy for organization to automate their unique, innovative business process across any set of applications. This new approach is Oracle’s Application Integration Architecture (AIA).

Prebuilt Integrations

• Out-of-the-box, end to end business processes

Foundation Packs• Industry specific process models,

common objects, shared services library and tools

Oracle Application Integration Architecture provides an open, standards-based framework for creating cross-application business processes that support the way organizations run their business today, while paving the way for long term, strategic, business transformation plans.

Its application independent framework enables companies to utilize the applications of their choice to create composite, tailored business processes on a flexible service-oriented architecture. For customers looking to quickly deploy integrations between Oracle applications, Application Integration Architecture offers pre-built integrations, allowing for rapid implementation of mission critical business processes. Oracle Application Integration Architecture is powered by Oracle Fusion Middleware, the industry's most comprehensive family of integrated, standards-based, and customer-proven middleware products.

AIA’s business process integration solutions are focused on helping the business become more effective, helping IT deliver value-added solutions rapidly and at lower cost, and enable IT to become a strategic partner to the business.


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How Can AIA Help In My Industry?

The table below shows several process scenarios by industry as well as cross-industry that AIA can help integrate. The goal of AIA is to enable end to end processes and make them more flexible, efficient and cost effective across multiple application systems. This is done via Process Integration Packs (PIPs) which are prepackaged integrations between applications to support the seamless execution of end to end processes.

Cross-Industry Processes• Marketing• Sales• Order Fulf illment• Customer Service• Supply Chain Planning• Product Management• Procurement

• Materials Management and Logistics• Project and Grant Management• Financial Control and Reporting• Cash and Treasury Management• Asset Lifecycle Management• Enterprise Information Management• Workforce Deployment

Communications Financial Services

Retail Utilities Insurance

• Concept to Launch• Order to Bill• Order to Activate• Trouble to Resolve• Agent Assisted Billing

Care• Collections

• Financial Operations Control

• Account Origination

• Sales

• Procurement

• Inventory Management

• Financial Control & Reporting

• Trade Promotion Management

• Concept to Launch• Order to Bill• Meter to Cash• Customer Service

(Self -Service & Assisted)

• Claim Adjustment• Subrogation

Management• Claims Settlement

Communications

The communications industry is an industry where competition has become fierce, hence making it a very dynamic environment. The key challenges in this industry are as follows:

• Enabling the next generation services

• Driving a customer-centric business

• Transforming to an information-based architecture

• Improving cost control and compliance

As the industry converges and the customer is more involved in the process, the activation process becomes very critical and has to be as efficient as possible. AIA can provide substantial value in the automation of the Activation to Bill process.


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Financial Services

The Banking and Capital Markets industries have some overlapping challenges as well as some unique challenges. The continued consolidation requires robust best-in-class back-office systems to enable business flexibility. Continually increasing regulatory requirements are forcing organizations to adopt a centralized approach to managing risk and achieving compliance. The escalation of fraud from unauthorized insider access, ID theft, phishing, etc is resulting from non-integrated systems. AIA can help evolve the enterprise architecture to more of a process-driven architecture to help mitigate risk and increase compliance in the processes.

Retail

Out-of-stocks represent a $69 billion dollar problem for the top 100 global retailers, and retailers are responsible for nearly 75 percent of all out-of-stock situations2. The key message for retailers is to optimize planning and merchandising decisions by integrating merchandise planning & execution, including demand forecasting, promotional planning & optimization, and retail price optimization. If these capabilities are currently in silo-ed applications, they need to be integrated to optimize the end-to-end process.

Utilities

Some of the biggest challenges facing the Utilities industry are optimizing customer-facing and back-office operational performance, driving environmental stewardship and regulatory compliance, creating business agility to adapt to dynamic market conditions, and finally making customer satisfaction a major priority.

While AIA can help with several of these challenges, the biggest impact can come from streamlining the end-to-end utility processes by integrating the underlying applications. This will result in improved service and a reduction in cost.

Insurance

The Insurance industry is always looking for ways to reduce time to market, and one of the ways that this can be achieved is by improving operational efficiencies across the end-to-end process from conception to product launch. AIA can help reduce market cycle time which, in turn, helps reduce time to revenue. Risk and compliance are major drivers for this industry, and AIA can help reduce risk and ensure compliance.

2 Oracle Retail Industry Solutions Portal


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AIA Technology can be used to rapidly integrate and automate processes that are manual and/or span multiple application

systems

Why build a business case for AIA?

The need to deliver more business value from IT

Today’s IT budget is spent mostly on “keeping the lights on”, in fact roughly 70% of the budget is spent on sustaining and running existing capability while only 30% is spent on providing new capabilities to the business3. The business, together with IT, needs to find ways to increase the value created by the existing and new investments in IT. The ideal allocation of the IT budget would be to spend roughly 55% on existing capability and 45% on new capabilities that create value for the business4.

More value without a corresponding increase in cost

One of the ways that CIOs can provide more value to the business is by improving and innovating business processes5. Improving business processes is nothing new to most organizations, but by using AIA to integrate business processes, one can expect a higher level of success. AIA technology can be used to rapidly integrate and automate processes that are manual and/or span multiple application systems.

AIA is increasingly being used to manage processes that span multiple packaged applications.

Quantifying the business value

While many CFOs see AIA as an initiative that can cut costs, there is also clear evidence to indicate that AIA also affects the top line of a business6. In the past, many IT project decisions were based on Total Cost of Ownership (TCO), but these days, Return on Investment (ROI)

3,4 Accenture I.T. Spending Survey 5 InformationWeek Analytics 2008 Tomorrow’s CIO Survey 6 http://economist.com/specialreports/displaystory.cfm?story_id=9928154 (accessed July 30, 2008).


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drives more IT project decisions7. TCO alone cannot justify decisions where the business needs to see the value. In an economy where many initiatives are competing for the same funds, only the most compelling business cases will win. Beyond understanding investment costs, technologists have to quantify the cost reduction, cost avoidance, and revenue impact of IT investment decisions. Using ROI in the business case will help the CIO to be seen as more of a business leader.

How to build your business case for AIA

Assess Process

Performance &

Integration Maturity

Identify Benefit

Drivers & Calculate

ROI

Develop Solution

Footprint & Implementation

Plan

Figure 1: Approach to building your business case

The approach to building the business case requires three major steps.

Step 1 is to assess the current process and understand the performance of the current process. During this step, one should also assess the integration maturity of the process area in scope. In order to quantify the impact of AIA, it is important to have a relative point of comparison.

Step 2 involves envisioning the future process and the solution footprint to support that future process. In addition, it is important to define the implementation plan and understand the cost of implementation. This phase helps define the investment required.

Step 3 is where we truly understand the benefits of AIA to the business. It is during this stage that we quantify the business value of the technology. Using the investments from step 2 and the quantified business value in step 3, we are ready to calculate the ROI for AIA.

7 TCO versus ROI, Kim S. Nash, CIO Magazine April 09, 2008


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Step 1: Assess Process Performance & AIA Maturity

Current Process Performance

Before assessing the process performance, it is useful to understand the current process. This can be done in several ways, i.e. text, tabular or diagram. Graphically depicting a process seems to be the best way to capture and communicate a business process. The figure below shows an example of a business process from the Reference Process repository created in BPA Suite.

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Assurance

Enterprise Management

Operations

Strategy and Commit Infrastructure LifecycleManagement

Product LifecycleManagement

Strategy, Infrastructure and Product

Operations Supportand Readiness

Strategic andEnterprise Planning

Enterprise RiskManagement

EnterpriseEffectivenessManagement

Knowledge andResearch Management

Financial and AssetManagement

Stakeholder andExternal Relations

Management

Human ResourcesManagement

Fulfillment Billing

Communications Industry Enterprise Processes

Customer

Billing Manager

Accounts ReceivableManager

Bill Customer

Receive and PayBill

ProcessCustomerPayments

ManageAccountsReceivableBalances

Manage Credit

ManageCollections

FulfillmentService Provider

Copyright © 2008, Oracle. All rights reserved.

Billing

• Resource Utilization

• Cycle time

• Throughput volume

• # of data sources

• # of Integration points

• Accuracy of data

• Speed to change process

• # of exceptions, rework

• Cost

Key Process Metrics

Figure 2: Business process example

After the process has been described, it is important to understand the current performance of the process to establish the baseline. The typical process metrics are cycle time, cost, quality, and volume as shown above. These metrics should be compared to industry benchmarks to get a comparative view of the business process performance.

The typical process metrics are cycle time, cost, quality and volume. These metrics should be compared to industry

benchmarks to get a comparative view of the business process performance.


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Assessing IT Maturity

INTEGRATION ARCHITECTURE OPERATIONS DEVELOPMENT

User Interface Logical Incident Resolution Planning & procurement

Processes Data &data services Support Build & reuse

Applications Shared Services Business Process Management Deliver & deploy

Data Physical Maintenance Maintain

Risk management

Project Execution

MANAGE & CONTROL

Strategy

Figure 3: Framework for IT Maturity

After understanding the current process and the performance of that process, it is time to assess the IT Maturity. IT Maturity can be assessed across 4 main dimensions as well as a horizontal governance dimension. Although all of the dimensions are critical to the IT organization, integration, architecture and development are most relevant for AIA.

Below is a description of the 4 main dimensions:

Integration

This dimension assesses the organizations integration capabilities to better understand how integration is done today as well as where the integration challenges lie.

Architecture

The logical and physical architecture are assessed in this dimension as well as data services.

Operations

This dimension covers the overall IT operations and includes all the IT service management areas.

Development

The development capabilities of the IT organization are assessed in this dimension to better understand the development environment and its’ support for integration.

These dimensions can be assessed using a simple capability maturity model (CMM) to identify the areas with the largest gaps.


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PERFORMANCE AREAS IMPORTANCE MARGINAL STABLE BEST IN CLASS TRANSFORMATIONAL

Integration High

No linkage between organizational priorities and enterprise processesContinual tight linkage of organizational priorities and enterprise processes enabling achievement of business goals.

Architecture High

Limited or no governance processes in place todayEstablished relevant and transparent accountability, decision making and reward processes to guide actions

Operations High

No standard or consistent methods for process managementEstablished approaches and techniques that support and enable consistent process actions.

Development High

Biggest Gap

3rd Biggest Gap

2nd Biggest Gap

Figure 4: IT Maturity CMM

The figure above is a depiction of a capability maturity model used to assess each of the 4 IT Maturity dimensions. The CMM establishes where you are today, plots the desired end state, and identifies where the largest capability gaps exist. This will help to prioritize the focus areas for the implementation plan.

Step 2: Develop Solution Footprint & Implementation Plan

During this phase, the future state process is created to better understand how the AIA technology can be better leveraged to support the business goals. A graphical depiction is best.

Figure 5: Business process depicted as BPMN

That leads to the next task during this step – creating the solution footprint. Once the future process is understood, the next task is to define the future state architecture to support the new process or processes. The figure below is a sample of a future state architecture using Oracle’s AIA technology.


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Application Integration Architecture

Optimize Offer

Forecast Demand

Capture Order

Pick, Pack, Ship Billing Deduction &

Settlement

PLM Financials/Procurement MDM Manufacturing CRM Logistics Service

Figure 6: Sample Solution Architecture

After envisioning the future state process and defining the future state architecture to support it, the most critical task is to define the implementation plan to ensure a successful implementation of the new process. The figure below is a sample of an implementation plan showing different phases, stages within the phases and different deployment waves. The implementation plan is a key input into the ROI calculation; it not only provides the timeline for implementation but also the cost of implementation which is a key input into the ROI calculation.

17.

7 8 9 10 11 12

16.

5.

15.

Phase 3

14.

13.

12.

7.

11.

4.

10.

9.

8.

Phase 26.

3.

2.1.Phase 1

654321Month

17.

7 8 9 10 11 12

16.

5.

15.

Phase 3

14.

13.

12.

7.

11.

4.

10.

9.

8.

Phase 26.

3.

2.1.Phase 1

654321Month

Local Deployment WavesLocal Deployment WavesValidateValidate DeployDeployDesign & ConfigureDesign & ConfigureDefine & DiscoverDefine & Discover Figure 7: Sample Implementation Plan

“There is a co-dependency between economics and business processes that is quite unique.

The reality of today’s economic conditions drives the need for the kind of productivity, quality and time to market that AIA

delivers.”

Jim Sinur, VP Gartner, AIA Think Tank, October 2008


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Step 3: Identify Benefit Drivers & Calculate ROI

AIA ROI Drivers

AIA provides many benefits to an organization but the two key benefit areas we will examine in this paper are reduction in total cost of ownership and increased end-to-end process performance.

Reduced Total Cost of Ownership

The diagram below shows the comparison of effort for a custom build versus using the AIA Foundation Pack versus using AIA PIP if available over a 5 year period. The scenario that was used for the study was 1 integration process between 2 application systems with an average of 16 integration operations being performed. The study showed that the use of the Foundation Pack was 57% less effort than custom build and the use of a PIP was 70% less effort than a Foundation Pack. This significant reduction in effort translates into a significant reduction in the total cost of ownership.

0.00 500.00 1000.00 1500.00 2000.00 2500.00

UsingAIA PIP

UsingAIA FP

CustomerBuildup

Person Days

Yearly Average Implementation, Upgrade and Maintenance Efforts Estimation

New Integration Development

Change & Evolution

Installation & Deployment

Maintance & Operation

Upgrade

The above is based on a 5 year TCO calculation with the following assumptions: 1 integration process, average of 6 business Objects, average of 16 integration operations and 2 applications systems using the TCO Calculator

57%

70%

Figure 8: Total Cost of Ownership Analysis

Increased End to End Process Performance

The primary purpose for AIA is to provide prebuilt integration to enable end-to-end processes across multiple applications. This capability can bring about significant value to business process performance. The scenario below is for the onboarding of a new sales employee, a process that typically requires several different systems and several interactions between various groups. This process can be flawed with inefficiencies and ultimately lead to employee dissatisfaction. In the example below, by using AIA, we can reduce the onboarding cycle time which makes the employee productive quicker, reduce the onboarding costs, reduce, and increase employee satisfaction.


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Payroll System

Security/Eligibility System

Application Tracking System

Human Resource System

TrainingSystem

ProcurementSystem

ExpenseReporting System

CustomerRelationshipManagement

System

Post Job/Gather

Resumes

Interview,Check

Eligibility

Hireand train

Pay Employee

MonitorPerformance

Onboarding cycle timeOnboarding costsIntegration costsEmployee satisfaction

Figure 9: Improving End to End process performance

In addition to the benefit drivers mentioned above, the table below shows a sample listing of other potential benefits AIA can provide.

Efficiency Visibility Agility

Delivering more with less Consistently knowing the current status and outcome of your processes

Adapting quickly to changing business conditions

Reduced process cycle time

Decreased risk in process execution

Reduced time to market for new products

Reduced process execution cost

Increased regulatory compliance

Reduced time to react to market changes

Increased throughput Reduced process exceptions

Increased new revenues

Increased user productivity

Faster proactive decision making

Increased existing revenues

Increased cash flow Increased customer satisfaction

Reduced development, deployment, integration and maintenance costs

Decreased working capital

Enhanced exception handling

Reduced time to take new projects live

Figure 10: Other potential AIA benefits


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Once the appropriate benefit drivers for your particular project have been identified, the next step is to estimate the range of benefit improvement that will be gained for the drivers identified. This is critical in quantifying the business value of AIA. AIA technology can not only provide cost saving opportunities but also revenue enhancement opportunities.

$8M$6M$4MImproved/ increased customer retention

$20M$15M$12MSpeed to market

$16M$12M$8MIncreased agility (adapt to market changes, deliver new products)

$10M$8M$4MScalability

$8M$5M$2MManage cash flow

$11M$8M$6MReduced time to market for projects and products

$8M$5M$3MDecreased working capital

$27M$25M$22MExisting revenue increased

$166M$126M$88MTotal Annual Steady-State Benefits

$11M

$6M

$5M

$2M

$3M

CONSERVATIVE

$17M

$8M

$15M

$10M

$8M

AGGRESSIVE

$15MExisting revenue protected

$7MCustomer centricity

$10MIncreased top line revenue

$5MImproved/ increased user productivity

$5MDecreased operating cost

PRAGMATICBENEFIT OPPORTUNITY

$8M$6M$4MImproved/ increased customer retention

$20M$15M$12MSpeed to market

$16M$12M$8MIncreased agility (adapt to market changes, deliver new products)

$10M$8M$4MScalability

$8M$5M$2MManage cash flow

$11M$8M$6MReduced time to market for projects and products

$8M$5M$3MDecreased working capital

$27M$25M$22MExisting revenue increased

$166M$126M$88MTotal Annual Steady-State Benefits

$11M

$6M

$5M

$2M

$3M

CONSERVATIVE

$17M

$8M

$15M

$10M

$8M

AGGRESSIVE

$15MExisting revenue protected

$7MCustomer centricity

$10MIncreased top line revenue

$5MImproved/ increased user productivity

$5MDecreased operating cost

PRAGMATICBENEFIT OPPORTUNITY

SAMPLE

Figure 11: AIA benefit quantification

The figure above shows the quantification of the benefits. In this example we have chosen to give conservative, pragmatic and aggressive estimates of the benefit values. In addition to quantitative benefits AIA projects will also yield many qualitative benefits. These should be documented and included to strengthen the business case further.

AIA Costs

$M$6M4. Implementation of New Software

$M$1M3. Implementation of Existing Software

Implementation*

Other Costs**

$0.1M$1M6. Training/Change Management

Software*

$0.2M$0.5M7. Other (travel, administrative, etc.)

$2.9M$20.5MTotal

$2M

$10M

ONE-TIME

$0.4M5. New Hardware/Infrastructure

Hardware/Infrastructure*

$2.2M2. Annual Maintenance

1. Application Licenses

ANNUALCATEGORY

$M$6M4. Implementation of New Software

$M$1M3. Implementation of Existing Software

Implementation*

Other Costs**

$0.1M$1M6. Training/Change Management

Software*

$0.2M$0.5M7. Other (travel, administrative, etc.)

$2.9M$20.5MTotal

$2M

$10M

ONE-TIME

$0.4M5. New Hardware/Infrastructure

Hardware/Infrastructure*

$2.2M2. Annual Maintenance

1. Application Licenses

ANNUALCATEGORY

SAMPLE

Figure 12: Estimated AIA Associated Costs


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The other key input into the ROI calculation is the associated investments with acquiring and deploying AIA. The typical costs include software licensing, software maintenance, implementation, hardware, infrastructure, training and other associated costs. The figure above gives a sample of how the costs can be broken out. It is also important to identify one-time costs as well as ongoing costs as both will impact cash flow.

Cashflow and ROI Analysis

Payback: ~24 mo.Payback: ~24 mo.

$M 5-Year Total Benefits

INVESTMENT COSTS AND BENEFITS$ Millions

$M 5-Year Total Benefits

INVESTMENT COSTS AND BENEFITS$ Millions

NPV: $M, ROI: x%

NET PRESENT VALUE$ Millions

NPV: $M, ROI: x%

NET PRESENT VALUE$ Millions

-$1.5

-$1.0

-$0.5

$0.0

$0.5

$1.0

$1.5

$2.0

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

-$1.0

-$0.5

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

BenefitsCosts

Figure 13: Sample Cash Flow and ROI Analysis

After the benefits have been quantified and the costs identified, the annualized cash flows over a five year (or other period) should be plotted out to identify the net benefit of the project. Using this data, the ROI (Return on Investment), NPV (Net Present Value), IRR (Internal Rate of Return), and payback period can be calculated. In today’s business environment, there are many projects competing for the same source of funds. The projects with the best returns and most compelling business cases are the ones that stand a better chance of being funded.

Return on investment (ROI) metrics drove more IT project decisions in the past year than did total cost of ownership (TCO).

Kim S. Nash, CIO.com,

April 09, 2008


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What benefits have others achieved?

KPN

KPN is the leading telecommunications provider in the Netherlands for personal & business customers with annual revenue of over US$15B. KPN has over 22 million customers and employs about 30,000 people.

Challenges

As the incumbent who had diversified into mobile and broadband, KPN’s architecture was largely built in silos of products and divisions. This led to several challenges:

Time-to-market for products and services was very slow, as it required working across several systems

KPN was unable to leverage common services across multiple channels - each service was built for each channel

Silo-ed architecture led to a complex IT landscape with more than 1,000 applications

IT costs were very high at KPN due to a stovepipe approach to building applications and many complex and expensive interfaces

KPN was focusing more on products and less on customers.

Business MarketConsumer Market

Integration

EnterpriseOSS

CRM

Billing

PSTN/ISD

N

ADSL

Mobile

Leased lines

Business AD

SL

IP VPN

VoIP

Product Apps Product Apps

ORIGINAL ARCHITECTURE


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Insight TCO Study

Oracle Insight worked with KPN to understand the value of AIA and its TCO. KPN was looking to radically change their application architecture with Oracle products and integrating all of these was high on their agenda.

The KPN-Oracle Insight case study identified some key benefits:

Lower Cost of Ownership

• One of the key findings of the study was around measuring the cost of ownership across the entire lifecycle of the product. We found that pre-built and pre-tested functionality drives cost savings for full lifecycle including implementation, upgrade and maintenance. Typically, custom integration tends to compete on implementation cost and functionality delivered, however, the costs of upgrade; maintenance and support usually tend to be very high.

• The study identified improvements across all stages of the lifecycle and confirmed our hypothesis on total cost reduction. Implementation costs were found to be 20% lower and upgrade and maintenance costs were found to be more than 50% lower using AIA.

• The key areas of cost reduction in implementation came from:

o Greatly reduced analysis and mapping of key common elements (customer, account, product, and price) across the system.

o Streamlined design and building time and efforts versus traditional Customer approach using EAI style message based integration

o Reduced testing due to the greatly reduced number of corrections versus custom approach

• The cost reduction in upgrade costs was driven from:

o Low spend on impact analysis as Oracle has already certified new release towards AIA as a result only extensions have to be analyzed.

o Reduced effort to upgrade as there is no need to re-integrate core flows as Oracle has already done that, only extensions have to be validated and they are also upgradeable.

o Testing costs gets reduced through elimination of some costly link testing and less bug corrections during upgrade

• Maintenance costs looked at aspects of product and pricing synchronization, offshore, onsite support models and software support costs. The key area of cost reduction included:

o Productivity improvements as manual product and pricing were replaced by automated AIA product synch functionality.


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o Reduces support costs both Offshore and Onsite through transfer of responsibility of bug fixing to Oracle Support

20%

Custom AIA

55%

Custom AIA AIA

50%

Custom AIA

Implementation Upgrade Maintenance

Shorter Time to Implement

The study found that pre-built integrations over custom integrations also led to shorter time to implement new interfaces and services. Our study showed reduction of over:

• 50% in implementation effort (man days) leading to 30-45% on implementation time

• 60% in upgrade effort (man days) leading to 50% on upgrade time

Average InitialImplementation

13 Months

7 Months 30%

AverageUpgrade

3 Months

1.5 Mth 50%

Reduced Risk

The study also looked at some of the qualitative benefits of using pre-built integration over custom. We found that reusability, reliability and predictability were perceived to be better with pre-built integration of custom.

The Results

KPN acquired some AIA licenses since doing this study and have achieved results that were identified as part of the case study.

KPN has started realizing some of the benefits around:


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• Accelerated implementation of new consumer offering

• Enhanced agent and customer visibility and accuracy

• Increased customer satisfaction

• Eliminated the risk and cost of building it themselves

Furthermore:

KPN expects to improve its time to market by 30% with Oracle's Application Integration Architecture

KPN expects to continue saving significant time and money in creating its BSS application landscape by using pre-built integrations, as opposed to having to develop them from scratch.

By adopting Oracle’s best of breed applications for CRM, Billing, HR, Content Management and leveraging AIA and Oracle Fusion Middleware capabilities KPN has been able to reduce integration costs.

Business MarketConsumer Market

Integration

EnterpriseOSS

CRM

Billing

CRM Consumer CRM Business

Billing Consumer Billing BusinessN

etwork O

p

Service O

p

Logistics

Finance

HR

Custom

erM

asterSIMPLIFIED ARCHITECTURE


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How can Oracle help?

Oracle Insight Program8

Oracle Insight uses a proven methodology which is flexible and customized to individual company objectives. Most engagements consist of four steps: Industry Perspective, Discovery, Solution Design, and Solution Presentation.

Industry Perspective

We want to help you understand how Oracle’s vast capabilities have helped others in your industry. Oracle facilitates an in-depth discussion with your executives about industry trends, best practices, vision, strategy, challenges and roadblocks.

Discovery

Leveraging established industry frameworks and robust intellectual property, we assess your current business processes and identify the capabilities required to achieve your corporate strategy. We will compare you to industry benchmarks and identify both the qualitative and the quantitative benefits from enabling those capabilities.

The Oracle Insight team will come to a customer's site, and, through a series of discussions, determine which capabilities the customer needs to have within its enterprise to achieve its strategic goals. Then, the team will connect those capabilities with the best solutions for that particular customer. As part of the process, the team reviews software configurations and installations, and recommends methods to help get the most value from the software.

Solution Design

Oracle recommends best practice processes and supporting technology, including a time-to-benefit analysis and implementation plan.

Solution Presentation

8 http://www.oracle.com/services/insight/how.html


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The Insight team works with you to create an executive presentation including supporting information, business benefits, and value drivers, to help you build consensus among colleagues and executive management or secure funding from your board.

Conclusion

“…IT investments deliver more value to a company’s top and bottom lines – by creating new efficiencies and increasing revenues – than any savings gained from traditional IT cost cutting”

-McKinsey, September 2008

AIA is a strategy and technology that delivers value to the organization by impacting both the top and bottom lines. However, this value has to be quantified for the organization to show the specific impact that will be delivered. This technology will not only bring quantifiable value to the organization but will do so without a corresponding increase in investment.

A compelling business case is needed to provide the motivation and prioritization for AIA projects in the organization. The approach to such a business case involves assessing the current business process and its performance, designing the future process and the solution footprint to support it, identifying the benefit drivers and finally calculating the ROI.

Many companies have already started to see substantial returns from their AIA projects, this paper will help you to estimate the kinds of returns your organization could achieve.

Building the business case for AIA March 2009 Author: Trevor Naidoo, Oracle Insight Contributing Authors: Mark Stevens, Oracle Insight, Prasoon Ranjan, Oracle Insight, Devesh Sharma, AIA Product Management, Vinay Kumar Jain, AIA Product Management Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores, CA 94065 U.S.A. Worldwide Inquiries: Phone: +1.650.506.7000 Fax: +1.650.506.7200 oracle.com

Copyright © 2009, Oracle and/or its affiliates. All rights reserved. This document is provided for information purposes only and the contents hereof are subject to change without notice. This document is not warranted to be error-free, nor subject to any other warranties or conditions, whether expressed orally or implied in law, including implied warranties and conditions of merchantability or fitness for a particular purpose. We specifically disclaim any liability with respect to this document and no contractual obligations are formed either directly or indirectly by this document. This document may not be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without our prior written permission.

Oracle and Oracle Insight are registered trademarks of Oracle Corporation and/or its affiliates. Other names may be trademarks of their respective owners.

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